A new research paper published by the government-sponsored Digital Finance Cooperative Research Centre suggests the introduction of central bank digital currencies for retail payments is not likely to occur in any OECD countries before the end of 2026.
The paper, which was co-authored by the former head of the RBA’s payments department Tony Richards and DFCRC chief executive Andreas Furche, examines the rationale, use cases and system risks of introducing digital currencies and also the technologies likely to underpin them.
Richards and Furche are sceptical about the prospect of digital issuance for retail payments in the next few years, even though a handful of central banks including the European Central Bank appear to be on a fast-track to issuance.
“Other central banks are currently less convinced of the case for issuance and will presumably be happy to be fast followers,” they observe in the paper.
“Based on where most jurisdictions currently are in terms of experimentation and policy thinking, and given the time it would take to complete a project to implement a CBDC that was interoperable with other accounts and payment methods, it seems unlikely that there will be actual issuance of retail CBDCs in higher-income countries anytime soon,” they state in the paper.
“For example the European Central Bank’s timetable would suggest possible issuance around late 2026 at the earliest.”
The authors are more bullish about the prospects of wholesale digital currencies being launched sooner because they would face less political resistance and represent arguably a modest modification to the settlement accounts that central banks already provide.
“There has already been significant experimentation involving wholesale CBDCs that give some confidence that implementation could be feasible and not overly subject to significant risks,” they argue.
Richards and Furche argue that distributed ledger technology and blockchain might offer viable platforms for wholesale digital currencies, but they question whether they would be fit for purpose to drive retail CBDCs.
In an interview with Banking Day on Tuesday, Richards said the focus of central banks at the moment was on developing and defining what the use cases for digital currencies were.
“The technology choice comes last in this process, not first,” he said.
“Developing the use cases is the priority.”
However, Richards said that DLT and blockchain were less likely candidates for a retail digital currency platform in light of the findings of recent pilots – most notably Project Hamilton in the US - that indicate they process large volumes of transactions less efficiently than more conventional database and distributed systems technologies.
“The Hamilton project report noted that blockchain was not required to enhance trust in a CBDC environment and also that consensus algorithms resulted in bottlenecks relative to other approaches,” Richards said. Operational risk expert Patrick McConnell – the man who forecast in 2017 that the ASX’s blockchain-driven replacement for the CHESS platform was ill-conceived – agrees with Richards and Furche’s observations about blockchain’s deficiencies as a core technology for retail CBDCs.
However, McConnell questioned also whether there was any value in deploying DLT or blockchain platforms to support a wholesale CBDC.
“We currently have the Real